PKT message, Re: Stiglitz on Soros

Paul:

In response to my question:

Re. the following:

Proviso #1 prevents accounts at the clearing house being held by the public.

Comment:

Under present world monetary arrangements, there is no necessary link between a country's external surplus or deficit incurred in any given period, on the one hand, and concurrent changes in the net foreign asset position of its Central Bank and/or other official financial agencies, on the other hand.

Absent appropriate structural changes in such arrangements, there would be no necessary link between changes in a country's official balances with the Clearing House and any concurrent surplus/deficit on its external payments account.

Are such changes envisaged under your proposal?

You replied:

Of course. It is a change in financial architecture not a marginal plumbers solution.

Comment:

What specific 'change in financial architecture' do you envisage whereby private sector holders of "excess" claims on, say, Argentina would acquiesce in one of the following:

For example, under proviso#6 the IMCUs would be made available to the
deficit nation(s) -- when a surplus nation has accumulated "excess"
credits at the clearing house, proviso #6 has a trigger mechanism that
requies the nation(s) with excess credits to dispose of these excesses by 1
of 3 possible ways:

(1) e.g., by spending these credits on the exports of the deficit nation
--thereby increasing exports of the "poor" nation and permitting it to
"work" to earn enough IMCUs to balance its international payments.

(2)If the surplus nation does not want the exports of the other nation(s),
it can spend its excessive credits surplus on foreign direct investment in
the deficit nation(s) -- increasing the stock of capital there , or

(3) if the surplus nation does not want to use its excess credits in either
of the first two ways, it can provide them via a Marshall plan foreign aid
program to the poor deficit nations.

And, if such private sector holders will not go along with alternatives (1) - (3), by what means do you envisage them being obliged to go along with the confiscation alternative which you summarize as follows:

If the surplus nation does not do any of these three things to make its
excess credit IMCUs available, the the pro bono publico officials of the
international clearing house institution will confiscate these excess
credits and make them available to deficit nations based on some formula --
similar perhaps to a negative income tax -- which even Milton Friedman
advocates domestically.

Gunnar